Australia's Jobless Rate Falls to Eight-Month Low

By Stella Qiu

SYDNEY (Reuters) – Australia’s jobless rate posted a surprising decline to an eight-month low in November, with signs of a resilient labor market.

The unexpected strength led markets to reduce expectations for a rate cut from the Reserve Bank of Australia (RBA) in February, following the bank's recent dovish stance on monetary policy. The Australian dollar rose by 0.6% to $0.6409, while three-year bond futures fell by 7 ticks to 96.192. Swaps suggest a 55% chance of a rate cut in February, down from 68%.

According to the Australian Bureau of Statistics, the jobless rate decreased to 3.9% in November from 4.1% in October, whereas analysts had predicted an increase to 4.2%. The participation rate slightly edged down to 67.0% from 67.1%.

Net employment rose by 35,600 in November, surpassing forecasts of a 25,000 increase, driven by gains in full-time roles. This follows a revised increase of 12,200 in October.

Adelaide Timbrell, a senior economist at ANZ, noted that although recent softer economic data increased the likelihood of a February rate cut, the labor market's performance mitigates that risk.

The RBA has maintained its policy for a year, determining the current cash rate of 4.35% is sufficient to control inflation within its target range of 2-3%, whilst preserving employment gains.

Governor Michele Bullock remarked that upcoming jobs reports, along with inflation and retail sales data, will be crucial for the February meeting.

Despite a dovish shift in perspective due to weak economic growth reported for the third quarter and underwhelming wage growth, the ABS indicated a higher-than-average number of individuals transitioned from unemployment to employment in November, contributing to a 27,000 drop in unemployment.

The jobs report indicated that hours worked remained unchanged in November while the underemployment rate notably decreased by 0.1 percentage points to 6.1%, marking the lowest level since April 2023.

Tapas Strickland, head of market economics at the National Australia Bank, warned that if the labor market continues to tighten, it could challenge the RBA's confidence in its forecasts. He added that one more employment report and the Q4 CPI are due before the RBA’s February meeting, with the Q4 CPI expected to fall slightly below the RBA's previous forecast, unlikely to prompt an immediate policy adjustment as the labor market remains stable.